This week Iron Mountain who announced their intention to sell of their digital business last month made good on their promise by selling it all to Autonomy for $380M. This represents a very interesting divergent strategy that has one company looking to exploit very valuable brick and mortar real-estate in the short-term, and another looking to exploit up and coming valuable Cloud virtual-estate in the future.
If you missed the announcement here are some highlights from Autonomy’s point of view:
“Cash consideration of $380 million (subject to a final working capital adjustment), funded from Autonomy’s existing cash reserves. Post-closing Autonomy expects to have a gross cash balance of at least $700 million.
Adds over six petabytes of data under management and more than 6,000 customers to Autonomy’s customer base, bringing Autonomy’s private cloud data to over 25 petabytes and total customer base to over 25,000.
Assets acquired include digital archiving, eDiscovery and online backup and recovery solutions of Iron Mountain Digital, but not the technology escrow service and a medical records archive service and other smaller operations which were recently shut down.”
Editors Note: 25 Petabytes! (that’s the beginning of some Big Data Retention)
From Iron Mountain’s perspective their reasons for getting out of the digital business were driven by the desires of their major shareholders
“By executing on its comprehensive strategic plan, Iron Mountain will be able to drive higher returns on invested capital (ROIC) and increase the return of capital to stockholders through:
· Sustaining its leadership in the highly attractive North America business
· Significantly improving its International portfolio
· Committing to total stockholder payouts of approximately $2.2 billion through 2013, including approximately $1.2 billion of capital returned over the next 12 months through a combination of share repurchases and dividends
· Forming a Special Committee to evaluate financing, capital, and tax strategies including conversion into a REIT”
· Sustaining its leadership in the highly attractive North America business
· Significantly improving its International portfolio
· Committing to total stockholder payouts of approximately $2.2 billion through 2013, including approximately $1.2 billion of capital returned over the next 12 months through a combination of share repurchases and dividends
· Forming a Special Committee to evaluate financing, capital, and tax strategies including conversion into a REIT”
While I see the financial merits of the move by Iron Mountain in the short term, I can’t help wondering if the company has basically started the clock ticking on its eventual demise. It reminds me of the way Blockbuster stubbornly refused to acknowledge the momentum of Netflix’s DVD by mail strategy and then later on demand digital distribution, while continuing to persist its brick and mortar stores. Except Iron Mountain actually did make agressive investments in digital and the cloud, but apparantly couldn’t pull it off at a return rate sufficient to satisfy their stockholders. Instead they will look to exploit their real estate holding through a REIT strategy growing in popularity among retail stores. The idea is to transfer properties into a REIT and then lease back the properties from the entity which monetizes its brick (aka real-estate assets).
In the short term, it looks likes a win-win for both companies since Iron Mountain is acknowledging that it isn’t able to pull off the cloud thing. While Autonomy picks up assets for less than the original cost that Iron Mountain built-up through acquisition. (As per the 451Group: Connected Corp in October 2004 for $109m, LiveVault for $42m in December 2005, Accutrac Software in July 2007, Stratify in October 2007 for $158m and, finally, Mimosa Systems for $112m in February 2010)
Time will tell if Autonomy makes these cloud assets a raving success and in an IRONic twist of fate accelerates the demise of the Mountain’s core paper-based business. I will be keeping an eye on when, not if, those white and blue Iron Mountain vans stop appearing at loading zones.